Dominant companies get draft EU competition law guidelines

Michael Reich, Mathias Greupner, and Tadeusz Gielas, who specialise in competition law at Pinsent Masons, were commenting after the European Commission published draft new guidelines on so-called “exclusionary” abuses of dominance. An exclusionary abuse occurs where a firm with a dominant market position unilaterally engages in behaviour that excludes competitors from a market, in breach of Article 102 of the Treaty on the Functioning of the EU (TFEU).

Businesses that abuse a dominant position in breach of Article 102 TFEU can be fined up to 10% of their annual global turnover under EU competition rules and may also face other consequences including potential exposure to follow-on damages litigation. The proposed new guidelines are designed to clarify how certain conduct might be considered to constitute such an abuse, and the type of evidence that the Commission will be looking for to demonstrate that such an abuse has occurred.

The draft guidelines further, for the first time, specify what conduct the Commission will presume to constitute an exclusionary abuse of a dominant market position, notwithstanding that each case will be determined on the facts specific to it. These presumptions reflect the Commission's interpretation of the EU courts' case law on exclusionary abuses.

The proposed new guidelines, which are open to consultation until 31 October 2024, draw on years of decision-making by the Commission in enforcing EU competition law as well as case law developed in such cases before the EU courts.

Margrethe Vestager, EU competition commissioner, said: “Exclusionary abuses harm both businesses and consumers. They lead to higher prices, less innovation and poorer quality of goods and services. So the rules of the game need to be clear for our intervention against such abuses to be effective. Our draft guidelines seek to present a predictable, coherent and workable framework to assess abusive conduct. They reflect our interpretation of the EU case law and the precious experience gained through the enforcement of abuse rules. We encourage all interested parties to share their views.”

The types of conduct by a dominant company that the Commission said it will presume to be exclusionary abuses are described as exclusive dealing, certain types of tying and bundling, refusal to supply, predatory pricing, and margin squeeze in certain circumstances.

Exclusive dealing refers to conduct where a dominant company requires or incentivises a customer or supplier business to buy or sell only or mostly from or to it, whether or not those arrangements are formally documented in contracts.

Tying and bundling practices can amount to exclusionary abuses in certain situations when conducted by a dominant firm, but will generally be acceptable for non-dominant firms. Tying occurs where a firm offers a specific product – the “tying product” – only together with another product – the “tied product”, although the tied product may also be offered on a standalone basis. Bundling occurs when two products are offered jointly as a single package – and either the bundled products are not available for purchase on a standalone basis at all, or they may be available for purchase on a standalone basis but it is cheaper to buy both products jointly as a bundle. The Commission said that tying and bundling abuses can manifest as a result of contractual obligations or where different products are integrated on a technical basis.

Refusal to supply occurs where a dominant company has developed an input exclusively or mainly for its own use and refuses to give access when it is requested by a third party – such as an actual or potential competitor.

Predatory pricing refers to below-cost pricing strategies of a dominant company. The practice may be used by a dominant company to either enhance the attractiveness of its product portfolio within a market or to prevent competitors gaining a solid foothold in that market. This conduct can also breach competition law when it is selectively applied to specific customers.

Margin squeeze arises where a dominant firm that is active in related upstream and downstream markets sets prices in either of those markets at a level that prevents downstream market competitors reliant on the dominant company’s input from being able to operate profitably on a lasting basis.

The guidelines also explain how dominant firms can rebut the presumptions articulated by the Commission.

Tadeusz Gielas of Pinsent Masons, said: “The use of presumptions in the draft guidelines aims to simplify the analysis for firms that may be dominant, however where a firm disagrees with the Commission’s approach it will ultimately be for the EU courts to determine whether a particular practice amounts to an exclusionary abuse in contravention of EU competition law.”

The Commission’s draft guidelines reiterate established case law that dominant companies can legitimately protect their own commercial interests where these are under attack, so long as their actions are reasonable and proportionate and are not undertaken with the purpose of strengthening an existing dominant position in the market or abusing such dominance. That is, when a dominant company’s conduct does not depart from “competition on the merits” – an established legal concept that is explained in the draft guidelines.

The draft guidelines also list other types of conduct that could amount to exclusionary abuses and how these should be assessed according to the Commission’s interpretation of relevant EU case law, including conditional rebates, multi-product rebates, self-preferencing, and access restrictions.

The Commission also warned that engaging in “conduct that holds no economic interest for a dominant undertaking, except that of restricting competition” – known as “naked restrictions” – will nearly always be considered an exclusionary abuse. These high-risk practices include situations where a dominant firm: makes payments to its customers to dissuade them from launching products based on inputs supplied by the dominant firm’s competitors; induces distributors to use its products instead of competitors’ by threatening to withdraw discounts; and actively removes infrastructure used by a competitor.

Michael Reich of Pinsent Masons said: “For so-called ‘naked restrictions’ and ‘conduct that is presumed to lead to exclusionary effects’, there is a presumption that there is a violation. Any such presumption inverts the burden of proof. Presumptions should therefore remain an exception and need to be carefully reviewed.”

Mathias Greupner of Pinsent Masons added: “The impact of these presumptions could be more significant than expected. In many jurisdictions such as Germany, there is a long tradition of civil litigation on exclusionary abuses. The guidelines technically only bind the Commission, but national courts may find that these presumptions constitute empirical evidence. This could have a significant effect on their assessments.”

Notably, the draft guidelines provide some clarification on how dominant companies might seek to demonstrate that their conduct which may otherwise constitute an abuse of dominance is “objectively necessary” or, under the so-called “efficiency defence” that it produces efficiencies that counterbalance, or even outweigh, the negative effect of the conduct on competition.

Gielas said: “The draft guidelines are relevant to all industry sectors, although much of the recent EU case law cited involves the technology sector. The draft guidelines also specifically mention multi-sided markets, platform markets, network effects, and self-preferencing, which relate to the digital economy.”

“Notwithstanding the inception of the EU Digital Markets Act (DMA), the Commission is expected to continue to enforce against abuses of dominance under Article 102 TFEU in appropriate cases involving the digital sector – these guidelines will be relevant in that respect. The guidelines will also be particularly relevant in other sectors, such as pharmaceuticals,” said Gielas.

The Commission said it plans to finalise the new guidelines in the course of 2025 based on the feedback it receives during its consultation. It intends for the guidelines to help increase legal certainty to the benefit of consumers, and businesses, as well as EU national competition authorities and courts.

Article 102 TFEU is the only area of established EU competition law where no formal guidelines currently clarify its application. Back in 2009, the Commission issued guidance on its enforcement priorities concerning exclusionary conduct by dominant companies. That guidance paper was updated in March 2023, as an interim solution, but will be withdrawn once the draft formal guidelines currently under consultation are finalised and adopted by the Commission.

Earlier this year, the Commission separately finalised updated guidance that clarifies its approach to market definition when applying EU competition law. Market definition is an important early step when ascertaining whether a company can be said to be dominant in a market and, if so, if it falls within scope of the EU’s prohibition on abuse of dominance.